Bocom Intl's report states that Netease's ('09999.HK') mobile game 'Onmyoji Chronicles' will be released on July 25th with more than 30 million pre-orders across all platforms. It is predicted to become the main driving force for mobile game growth in the third quarter. The mobile game has been optimized for mobile operation habits to overcome the difficulties of touchscreen devices in combat games. The bank estimates that the third quarter and this year's 'Onmyoji Chronicles' mobile game revenue will reach RMB 2 billion and RMB 4.4 billion respectively, contributing 8% and 5% of the gaming business revenue respectively.
The bank expects that Netease's mobile game revenue will increase by 15% annually but decrease by 9% quarterly in the second quarter, mainly due to seasonal factors and the absence of new games during that period. The third quarter revenue is expected to offset the impact of last year's high base of 'Nishuihan' under the promotion of 'Onmyoji Chronicles' mobile game. It is still expected to achieve stable growth of mobile game revenue, with an expected increase of 13% in annual mobile game revenue.
In addition, the bank pointed out that 'World of Warcraft' national service began soft launch on June 27th (tentatively ending on July 10th), and it has not yet been commercialized. During the previous testing phase, it attracted more than one million players and the number of players online on a single server exceeded 120,000. The adjustment for 'Dreaming of Jianghu' PC game will be completed by the end of the first half of the year. It is expected that in the third quarter, PC game revenue will show a recovery trend under the promotion of 'World of Warcraft' return and the launch of 'Seven Days World' (global public beta on July 10th) and 'Yanyun Shiliusheng' PC game on July 26th. The bank currently expects Netease's annual PC game revenue to decrease by a low single digit percentage, and may adjust its estimate based on the performance of new games.
Although Netease's PC game adjustment and mobile game growth have slowed, they have already been reflected in the current stock price. The bank predicts that after the launch of new games in the second half of the year, there should be marginal recovery opportunities. At present, the valuation is lower than the industry average. Based on the expectation of new game launches and profit optimization in non-gaming businesses, the bank raised Netease's 2024 profit forecast by 2%, maintained its target price at USD 117 and HKD 182, corresponding to a gaming business PE ratio of 18 times in 2024. The bank also maintains a 'buy' rating on Netease due to the recovery of PC game growth in the second half of the year and the strengthened performance growth certainty of mobile games.